Looking for advice… We have three children ages 7, 5 and 3. We have a family account RESP setup through Nesbitt Burns but need to switch advisors. We have no other affiliation with Nesbitt Burns and therefore are looking into transferring our account to one of the major banks. I have 3 questions:

Should we be doing a family account as opposed to 3 individual accounts, given the age ranges of our children?

What are recommended monthly contribution amounts? and

Any recommendations in terms of which bank to approach? We have ruled out BMO.

By the way, great website – thanks!

Ok, let’s look at each question:

Family RESP vs individual RESP

It sounds like Anne is thinking that because the ages of the kids are relatively close, a family plan would make more sense. One misconception about family plan RESPs is that they are the only way to share funds between siblings. Not true, as sharing can also be done between individual accounts as well.

I have a family plan for my two kids and although I have considered switching it to two individual accounts, so far I’ve stayed with the status quo. I like the convenience of writing one cheque whenever I make a contribution. I also like having less accounts.

The RESP rules between siblings are the same whether they are in a family account or individual accounts, so I think Anne has to consider the different pros and cons and see which setup is more convenient for her.

Recommended monthly contribution amounts for RESP

To figure out the proper monthly contribution amounts, you have to determine what your goals for the RESP are. Is it to contribute to get the maximum RESP grant? To pay a certain percentage of the post-secondary education?

It’s very difficult to know in advance how much post-secondary education will cost. How many years will the student go to school? Will they live at home or away from home? Will they be in an expensive city?

It’s a lot easier to figure out how much to contribute to get the maximum grant, so let’s do that and then Anne can try to contribute that amount or if she can’t quite reach that goal – at least she’ll have something to shoot for.

The maximum amount of RESP grant that one child can receive in their lifetime is $7,200. If the parent is higher income (I’m going to assume Anne is) and doesn’t qualify for any low income RESP grants, then it will require $36,000 of contributions to reach the maximum of $7,200. These contributions have to be made by the end of the year that the student turns 17.

If a child is born in January and you manage to get an account set up in that same month (good luck with that), then there will be 18 years where contributions can be made or 216 months. $36,000 divided by 216 is $166.66. So if you start early enough, it will take $166.66 of contributions per month to get the maximum grant amount.

For someone like Anne who has older kids and accounts already set up – she will have to determine how much grants have been paid to each child* and then take $7,200 minus grant paid and divide by 0.2 to get the remaining contributions. Divide that amount by the number of remaining months before the end of the year when the child turns 17 and you have your monthly contribution amount.

*To find out how much grants have been paid – contact your financial advisor or call the HRSDC at 1 888 276 3624.

Best bank for RESP account

I don’t have an opinion on which bank offers the best RESP. The banks are all pretty much the same in my view, so take your pick. My article – How to set up the safest, cheapest and easiest RESP account, covers GIC RESP accounts and also takes a look at an RBC mutual fund which is geared towards educational savings. If you want to work with an advisor, then try to spend some time finding someone you can work with.

Want to learn more about RESPs? Buy The Book:

Terrific site. Re best bank. In fact, TD is the only bank which allows RESP account holders to invest in a wide variety of products from stocks and bonds to ETFs and mutual funds. All the others limit investments to proprietary funds, ie the bank’s own. This is very limited and results in higher fees and less choice.

Sorry, I meant to add if the account is opened at the branch level rather than at the brokerage. Often people go into the branch not realizing there are two ways to open an RESP and one (brokerage) gives them full investing options and the other (branch) offers very limited investments.

I have two children, 2 and 10 months, and have setup RESP savings plans for both of them.
I choose to set them up at TD Canada Trust because I have other accounts there and if you decide to self manage and don’t mind a few extra steps, they have the LOWEST mutual fund fees in the business by setting up an e-Series Mutual Fund Account.

It is easy to determine which grants are for which child because although they are family plans, they are setup individually so you have two account numbers and contribute to each account individually and get the grants into each account based on the contribution amounts.

There are lots of info online regarding the e-Series account at TD I mentioned above and tips on how to set it up as well as how to determine asset allocation of the accounts based on their age and when you think they need the money.

I think another thing to consider is whether her province offers additional grants beyond the federal grant. In Quebec not all (in fact most) financial institutions don’t participate in QESI – TD e-series doesn’t and none of the brokerages do but RBC does.

I was with TD e-series but I’m currently with RBC. TD’s e-series is great idea with a horrible implementation.

It might be morbid curiousity but I’d really like to know why she has to leave Nesbitt Burns and why BMO has been ruled out?

The problem with group RESP is not only the hefty fees and the problems if your child does not go to university or college, it is also the restrictions if your child does go college. The prospectus for the group RESP contains a lot of fine print that you may not think is important but will be used to restrict your access to the money earned by your money when it comes to payout.

Child has a learning disability or wants to complete a program in 5 years rather than 4 — sorry, we don’t accomodate.
Child wants to change programs? Sorry, “child did not advance” – no EAP for you!
Child had some difficulty and failed a couple of courses but is now back on track? Sorry, child did not advance — no EAP for you!
Child is attending university out of town and classes don’t start until Sept 6th? Sorry, paperwork including form from register must be filed by September 2! You will get your money in December!

If you imagine an investment plan adminstered and controlled by the Soup Nazi, you have a pretty good idea of what the plans are like at payout time. Remember, every dollar they deny your child can be redistributed to cover “administrative costs” and/or boost the claimed returns to children they were not able to deny payments to — this is a good thing for the group administrators and sales people, because that’s what the plan is about — sales and management fees — not educating children.